Hoteliers warn new investors will direct their capital flows to maximize profits, not revenue.
LONDON—Hoteliers need to focus on maximizing profit, not revenue, as a new breed of investor places capital into the hotel industry and looks increasingly at driving returns, according to sources.
Speakers at the 24th Annual Hotel General Managers’ Conference said this type of investor has grown up in the world of online travel agencies and other disruptors and has witnessed more blurred lines between traditional and online channels than perhaps most hoteliers. Regardless of the hotel-OTA relationship, OTAs are here to stay, sources said.
Jonathan Langston, co-founder of the Annual Hotel Conference, said hoteliers “are laggards” in terms of adopting technology.
“Disruptors have taken a great deal of money out of the hotel industry, which could have been spent in the industry,” he said.
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Peter O’Connor, professor of information systems and dean of academic programs at ESSEC Business School, said the main reason for disruption is that hoteliers are “very good at collecting data but awful at analyzing and employing it.”
Langston said as profits in the hotel industry have dipped of late, new, tech-savvy owners have entered the fray.
“There are constant newcomers, and the new disruptors will be investors who are looking for returns,” he said. “These people are saying, ‘Hang on a moment, the current model does not work for a long-term sustainable business.’”
Langston said there is a detachment between the prime health of the business and the fees hotel companies earn on top-line revenue.
“No moderation exists to tackle that,” he said.
The hotel industry is still trying to convert guests who book rooms via third-party platforms to direct booking channels, he said.
“Hoteliers need to ask themselves what profitability should be achieved, and then price up from there,” he said.
The problem is that hoteliers remain a discreet bunch, Langston said.
“There are intuitive barriers,” he said of such hotelier attitudes. “They say, ‘Yes, we know about you as a guest, but we’re not going to use (that information).’”
O’Connor cited AccorHotels as an example of a brand that concentrated on driving profits, not revenue, since Sébastien Bazin took over as CEO in August 2013. (Hotel News Now’s Jeff Higley underlined Bazin’s approach of maximizing returns as far back as March 2014.)
“He concentrates on profits,” O’Connor said, adding Bazin came into the industry from the world of private equity.
Greg Hegarty, regional GM of PPHE Hotel Group, speaking at a panel session on education, said academic improvement is a necessary step in modernizing the thinking of the industry.
Hotel industry qualifications give hoteliers the entrepreneurial skills, maximize their potential and provide a dramatic sense of gravitas, he said.
“You see the transition from operational excellence to managerial excellence,” he said. “Becoming entrepreneurs, they look at the business in a different way, a macroeconomic way.”